The US Senate Permanent Subcommittee on Investigations held a highly publicized hearing on May 21, 2013 to discuss Apple’s international tax planning. As the first expert witness (testimony here), I had a ring-side seat to the hearing and Apple’s international tax planning.

One purpose of this article is to clearly identify the two key tax policy issues that need to be addressed by policymakers both in the US and internationally. Because the discussion at the hearing was very U.S. centric, these two issues may have been lost in the rhetoric.

Should the US and the rest of the world allow Apple to record approximately two-thirds of its global income in an Irish entity that has few or no employees and little or no real activity?

Assuming the answer is “no”, where should the income be recorded? Should it be the US, other countries, or some combination?

Another purpose is to discuss arguments made at the hearing by Apple and Sen. Johnson to support Apple’s allocation of only 30% of its global income to the US. These arguments were not fully explored during the hearing and warrant additional discussion. In short, Apple should not be able to argue one thing to support its US income allocation and then argue something different for allocating income to foreign countries.

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Comments

How can cost sharing arrangements and use of check the box planning be characterized as gimmicks when they are explicitly allowed under the Code and regulations. The two concepts can be criticized as bad tax policies but under current tax law any tax lawyer who did not use these arrangements when available would be guilty of malpractice. If Mr. Harvey was in private practice would he counsel his clients to avoid such artifices?